The trickle-down theory of economics may have long since been discredited, but it now seems that the sub-prime mortgage crisis that has rocked the U.S. real estate market in recent years is beginning to ooze down into the student loan sector. To make a long story short, the current turbulence in the credit market is making it a lot harder for some college students to fund their post-secondary schooling.
As the fallout from the nationwide credit crunch has all types of lenders tightening their belts and restricting their offers of credit, college students across the United States have seen their access to this once-dependable source of funding dry up. Dozens of major financial institutions have either eliminated or greatly scaled back their student loan programs, and perhaps even more disturbingly, a number of state-level non-profit lending agencies have closed up shop in recent months.
Although official statistics have not yet been gathered, reports are beginning to emerge of thousands of U.S. college students who have been forced to put their studies on hold because they have been denied access to student loans. So far, it appears that poor and minority students many of whom would be the first in their families to attend college have been hardest hit by the crisis. In addition, middle-class students whose families earn too much for grants and need-based scholarships, but whose parents cant afford to make large contributions, are also struggling to get by without full access to student loan programs.
Analysts say that the federal government is partly to blame for the current scarcity of student loans. In 2007, the Bush administration passed legislation that eliminated many federal subsidies for student loan programs. Since that time, over $38 billion in guaranteed federal funds have been cut, making the business of student lending too risky and unprofitable for many financial institutions to roll the dice on.
However, reports of the current crisis seem to have convinced the federal government of the error of its ways. Last week, it was reported that the Bush administration has proposed an emergency program to help bolster the faltering student loan industry. Although the current legislation has not yet been passed, the plan calls for channeling billions of dollars in emergency funding to state-level student loan agencies. The money would be set aside specifically to aid students who could not obtain other types of college funding or student loans.
In the meantime, what can you do to weather the current student loan crisis? Here are some tips and hints to help you make sure that you can pay your tuition this fall.
Take a deep breath. If youve been turned down for a traditional student loan, dont panic. Instead, think of it as a temporary setback, rather than a definitive death-blow to your college and career dreams. In order to research and consider all of your alternatives, you need to be rational and clearheaded, so try not to give in to the urge to curl up into a ball and lapse into a days-long crying jag. Remember, its just a roadblock, not a dead end.
Carefully consider all of your options. Student loans are just one way to get through college. Granted, theyre a popular and relatively pain-free option, but theyre not the be-all-and-end-all of college funding. Put on your Sherlock Holmes hat and start brainstorming other funding alternatives. Use the Internet to research obscure scholarships, talk to relatives about the possibility of low-interest personal loans, or check out the work-study job board on campus. With a little initiative and ingenuity, you should be able to come up with some viable sources of alternative funding to get you through the current crisis.
Read the fine print. If you decide to opt for a private loan, make sure you understand all of the terms and conditions that are attached to it. Many private loans dont offer the low interest rates, deferment options, and other sweet amenities of federally subsidized loans, so you might have to begin making payments while youre still in school.
Have a Plan B ready to fall back on. If worse comes to worst and theres just no way that you can scrape together the moolah to make tuition this fall, its not the end of the world. Draw up several contingency plans that you can turn to if your funding falls through. Maybe you can take a year off and work full-time, or perhaps the community college down the road would be a workable alternative for the time being. Just make sure your Plan B provides you with a definitive path back to college when the time is right.
Do you have a student loan horror story to share? How are you planning to pay for college this fall? Tell us all about it in the comments.
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